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Summary:

The other day I had coffee with an entrepreneur whom we’ll call Shai. Shai was entertaining me with good, and not-so-good, stories about his experiences learning the ropes in the new media business in the U.K. One pearl of wisdom stuck out. Shai recalled a period […]

The other day I had coffee with an entrepreneur whom we’ll call Shai. Shai was entertaining me with good, and not-so-good, stories about his experiences learning the ropes in the new media business in the U.K.

One pearl of wisdom stuck out.
Shai recalled a period at his last venture where he had grown panicked about his debt-level. You’ve probably been there: already in hock for a few grand more than he was comfortable with; not yet cash flow positive; yet Shai’s company was at a critical inflection, where he needed to ramp things fast to get to cash flow positive.

Shai figured his choices were few. He could: sell equity to raise money; take on a partner and change his b-model entirely (which he didn’t want to do because he “still believed” in it); sell out; or, shut it down. He sought out a mentor to help him choose.

And this is when his mentor tells him:

“Don’t be stupid. Borrow more. At $20,000 in debt, if your business model doesn’t work, you are in trouble. At $2,000,000, if your business doesn’t work, the bank is in trouble.


I just love this advice. Shai says sit was one of the best bits of wisdom he received. Why? Because it helped him see his venture outside of the bounds of his own attachment to it. Think about it. Bankers are responsible for their decision to lend to you!. So, it’s not all about you. The sooner you stop personalizing things the easier your decisions, especially the very hard ones, will be.

What a great perspective to have.

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  1. LOL!
    What an awesome quote!

    “Don’t be stupid. Borrow more. At $20,000 in debt, if your business model doesn’t work, you are in trouble. At $2,000,000, if your business doesn’t work, the bank is in trouble.”

  2. Interesting thoughts, and I agree in terms of debt. But would you say the same thing about taking capital from investors? Each time you do that you’re giving away a piece of your company to an outside force (and who knows what they will demand).

  3. George Manlangit Thursday, January 31, 2008

    I will agree to a certain extent. However, there must a sense of financial responsibility. True, the bank is in trouble with $2M, so are the employees that goes with the bank when it goes down. Not to mention the business as well. This is exactly what’s happening in the credit industry. There’s been a lot of overleveraged investments that are supposed to be safe but went south when the R/E market went down. Sure, the bank is in trouble. So are the employees that closed with the banks.

  4. We’ve had people comment here before — even VCs : never sell equity when you can get buy taking out a commercial loan or line of credit — even consider using your credit card to finance your operations if you have a good ratiing, and can get an interest rate that you KNOW you can manage. Selling equity should be your fundraising method of last resort.

  5. We’ve had people comment here before — even VCs : never sell equity when you can get buy taking out a commercial loan or line of credit — even consider using your credit card to finance your operations if you have a good FICO/credit rating, and can get an interest rate that you KNOW you can manage. Selling equity should be your fundraising method of last resort.

  6. Keeping in mind that we’re entering the post-bad loan bubble period, good luck locating a bank that would lend a serious amount of capital to a business that’s cash-flow negative and has no significant operating history. Most likely, they’ll ask for collateral, such as your house. If you’re good at persuasion, and have some operating history and good relationship with your bankers, then that collateral may not cover the entire amount of the loan, so yes, your bank will be in trouble if you fail – but so will you…

  7. Мысль Дня #1 | Startup Cube – Бизнес-консультирование стартапов Monday, February 4, 2008

    [...] источник [...]

  8. “At $2,000,000, if your business doesn’t work, the bank is in trouble.”
    This is false, sad as it sounds, way countries and goverments have made deals with banks is that banks doesn’t have ANY of the money they lend, so they cant lose it either, when you take loan, it appears from thin air to you credit card. Yes, i know it sounds crazy but that is the truth. Search a bit about it and you find out that it is so.

  9. Benjamin Kuo’s Blog » Blog Archive » Good and bad reasons for raising venture capital Wednesday, February 13, 2008

    [...] business model isn’t working, you’re bleeding cash, and you can’t see yourself getting cash flow positive [...]

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